Oil Up on Drop in U.S. Crude Stockpiles

Oil prices rose on Monday after a drop in stockpiles at the delivery point for U.S. crude in the second half of last week outweighed pressure from near record high production in Saudi Arabia.

Tensions in the Middle East and a drop in the number of rigs drilling for oil in the United States also put a floor beneath U.K. North Sea Brent and U.S. crude futures, traders said.

Brent, the more widely-referenced benchmark, was up 40 cents at $63.85 a barrel by 1:12 p.m. EDT (1712 GMT), after falling more than $1 earlier. U.S. crude rose $1.14 cents to $56.88, after losing nearly $1 at the session low. “The market was bouncing around looking for news to latch on to, and the draw numbers for U.S. crude certainly helped,” said Phil Flynn, analyst at the Price Futures Group in Chicago. Oil services firm Genscape reported a drop of more 900,000 barrels at the Cushing, Oklahoma delivery point for U.S. crude between Tuesday and Friday last week, market sources who saw the data said. For the week to Friday, Genscape reported a build of about 350,000 barrels, they said. Speculation has been rife that rapidly climbing U.S. crude supplies would soon cause storage tanks in Cushing to top, leaving little or no room for more barrels. The drop reported by Genscape eased some of that anxiety, traders said.

Oil prices have risen around 17 percent since April began, on speculation about falling U.S. output as the domestic rig count fell to 2010 lows. But Wall Street bank and major energy trader Morgan Stanley said the drop could be outweighed by increases in Saudi production. “We worry about the market’s fixation on the U.S.,” Morgan Stanley said in a note. “Saudi Arabia alone added the equivalent of half of Bakken production in a matter of months – far beyond any U.S. slowdown,” the note said. Bakken, the third largest U.S. shale gas field by production, is estimated to turn out about 1.3 million bpd in April, by U.S. government estimates. Saudi oil minister Ali al-Naimi told Reuters in Seoul on Monday that the No. 1 crude exporter expected to produce at near record highs of around 10 million barrels per day in April. “I have said many times we will always be happy to supply to our customers with what they want,” Naimi said. “Now they want 10 million.” –Reuters